'A whole pile of uncertainties:' Trade, politics expected to hang like a dark cloud over the economy

With trade talks heading back to the back-burner for a while, chatter about economic growth and interest rates is heating up again

Storm clouds over Calgary. Uncertainty over NAFTA, Brexit, TPP and the leadership of the United States is expected to hang like a dark cloud over business investment in the short term, the Bank of Canada says.Leah Hennel/Postmedia News files

OTTAWA — With trade talks heading back to the back-burner for a while, chatter about economic growth and interest rates is heating up again.

But uncertainty over NAFTA, Brexit, TPP and the leadership of the United States is expected to hang like a dark cloud over business investment in the short term, as the Bank of Canada noted in its latest Monetary Policy report.

“We have this problem, which is that we (Canada) have a whole pile of uncertainties — much more than we do in the United States,” Frances Donald, senior economist at Manulife Asset Management, said in a television interview.

“We still don’t know what those (two) rate hikes we received in 2017, and now one in 2018, will do.”

Further muddying the picture is concern over rising minimum wages in Alberta and Ontario, and the prospect of continued intervention in the housing market.

Canada’s economy continued to chug along in November at a rate of 0.4 per cent, as reported by Statistics Canada last week, with growth spread widely over most sectors, but strongest among the manufacturing sector, which saw a gain of 1.8 per cent.

The auto sector, alone, showed a strong rebound after plant shutdowns for maintenance and left workers idle in the previous two months. Likewise, chemical plants were up and running again in November following a pause for maintenance ober the past few months.

The November data is “a welcome bounce back from October’s flat reading, but will make it tough to hit the Bank of Canada’s forecast for 2.5-per-cent GDP growth for all of Q4,” noted BMO Capital Markets.“While hitting the BoC’s Q4 GDP forecast is going to be challenging, this report won’t change much from a policy perspective for the bank, which remains in cautious tightening mode.”

The next interest rate decision by Governor Stephen Poloz and his policy team will come March 7. Most economists do not expect a rate movement on that date, although the bank has shown in the past that is not tied to schedules when in comes to adjusting its lending level.

Big month for U.S. employment

Job growth in the United States jumped by around 200,000 positions in January, the biggest one-month gain in more than eight years and after 160,000 jobs were created in December, the Labor Department reported on Friday.

The unemployment rate remained at 4.1 per cent, still a 17-year low reading.

Numbers this week

Canada trade numbers for December will be released by Statistics Canada on Tuesday, followed on Thursday by new house prices data, also for December.

Then the big one: Canada’s employment report for January will come out Friday. It will could be a tough slog to beat December’s 79,000 jobs created. The previous reading also showed a jobless rate of 5.7 per cent — the lowest level since 1976.

Yellen’s swan song

Janet Yellen came to the U.S. Federal Reserve with a lot of credibility, as head of former President Bill Clinton’s council of economic advisers and a business professor at the University of California, then as head of the Federal Reserve Bank of San Francisco.

With her last day as a member of the Fed last Friday, it seems a good time to look at what Yellen has accomplished. She certainlyproved her metal in the face of some tough challenges during her four-year tenure: Just having to follow Ben Bernanke would have been difficult enough, given Yellen’s predecessor was greatly credited (rightly or wrongly) with leading the charge to save the world from the 2008-09 financial crisis and the worst economic meltdown since the Great Depression.

Yellen can be credited for leading the bank’s transition from the ultra-easy monetary policy that Bernanke instituted in response to the crisis. On her watch, the Fed has hiked interest rates four times and ended its quantitative easing program. Unemployment has fallen to 4.1 per cent and inflation has stayed stubbornly below the 2 per cent target. It remains to be seen whether she allowed the U.S. economy to run too hot for too long.

Rather than tussling with a disapproving president in Donald Trump, Yellen graciously stepped aside to make way for his appointee Jerome Powell, and leaves the economy in pretty good shape. It’ll be up to Powell to handle all of the uncertainties ahead.